Apple E-Book Case: Cure Will Hurt

A week before the U.S. District Court for the Southern District of New York considers remedies for its finding last month that Apple conspired to fix ebook prices, the Department of Justice and 33 State Attorneys General have filed a proposal to address the company's conduct.

The proposal strikes at the heart of Apple's power over its platform. It requires Apple to rewrite the rules under which it sells ebooks. Presently, Apple's App Store Review Guidelines state that apps linking to external purchasing or subscription mechanisms, such as a "Buy" button, will be rejected.

The DoJ wants to rewrite those rules, at least for two years. Its proposal suggests that Apple be required to treat ebooks like any other app, except that for two years, it must allow ebook sellers to provide a "Buy" button or a link in their ebooks that points to their own website or ebook store without any compensation. This denies Apple the opportunity to insist on a 30% cut of revenue arising from commercial transactions that originate in the ebooks it distributes.

The proposal also calls for: 1) an end to Apple's agreements with the five major publishers named in the litigation -- Hachette Book Group (USA), HarperCollins Publishers, Holtzbrinck Publishers (Macmillan), Penguin Group (USA) and Simon & Schuster; 2) a five-year prohibition on entering new agreements with publishers that limit Apple's ability to compete on price or that give Apple "most-favored nation" terms; 3) a prohibition on retaliation against any ebook publisher that refuses to enter an agreement with Apple about the terms of ebook sales; 4) a prohibition on conveying information through ebook publisher negotiations to another ebook publisher; 5) a prohibition on agreements that would be likely to increase the price at which ebook retailers or content vendors can acquire ebooks or other digital content; and 6) a prohibition on agreements with any ebook retailer that represent price fixing.

More onerous still, particularly for a company as compartmentalized and secretive as Apple, the proposal calls for the court to appoint an External Compliance Monitor "at the cost and expense of Apple" to ensure that Apple complies with its obligations. This person will have the power to hire additional consultants, to interview Apple personnel informally or on the record, with notice and without interference, and to "inspect and copy any documents in the possession, custody or control of Apple."

Apple did not respond to a request for comment. Previously, a company spokesman rejected the court's finding and insisted it will continue to fight.

Apple cannot be pleased that that DoJ wants to punch a hole in its walled garden, which is already under siege from Amazon: The online retail giant recently updated its Kindle app to allow users to download free ebook samples that include the "Buy" link that Apple prohibits within apps it distributes directly through its iTunes App Store, like the Kindle app.

In the event Apple cannot convince the court to adopt different settlement terms or cannot reverse the court's finding on appeal, the company will be humbled -- but all is not lost. Apple only has to include links to competing ebook stores for two years, after which it can presumably return to a more restrictive regime. However, if providers of ebook apps decide not to submit new updates for Apple's approval after the two-year free-for-all expires, those apps will remain in the App Store. To be rid of them, Apple will be forced to endure the scrutiny and media attention that will come with an active purge of offending apps.

I'm pretty sure I'm missing something here, because my simple brain is having a hard time figuring out what the big deal is about Apple's eBook program: Amazon has had a strangle-hold on the publishing market and has been pushing prices lower and lower, which is generally a good thing -- though not for publishers or authors, like me; Apple comes along and offers an alternative that will help keep some profit in the business for content creators and publishers, but doesn't prevent hem from selling through Amazon or any other channel (yes, there are some catches, like they can't use Apple's software to create content for other platforms, but it wouldn't be compatible anyway). Amazon gets pissy and whines to the DOJ that big, bad Apple is making it hard for them to screw publishers and authors and keep as much money for themselves -- up to 70% in some cases, versus Apple's comparably puny 30% -- because Apple has a monop... Oh! Wait. Apple *doesn't* have a monopoly in the tablet market ... or the phone market ... or the desktop market ... AND Apple is a new player to the book market.

But because Apple is this massively successful company, the government feels it needs to stop them? The government -- our government -- that's doing such a horrendously poor job running the country, suddenly knows how to run the publishing industry so much better ... and they feel compelled to save the ironically-named David in this fight -- Amazon -- from Goliath Apple ... yet they'll be killing publishers and authors who collectively don't have anywhere near the resources of "poor, little Amazon".

All of which raises a question for the DOJ: when your sanctions put book publishers out of business (and their employees out of work) and make it infeasible for authors to make a living creating content, what (new) books do you think Amazon will be selling? There won't be anything in the pipeline, because their won't be any money to be made in the market by anyone except Amazon.

That makes total sense. Of course that's what the government should work towards -- more people out of work, so our economy can continue its death spiral ... or accelerate it.

Apple is no white knight here. I'm not naive, and no one else should be either. Apple wants to make money. But it's plan at least spreads the wealth around to ensure that the folks who make the content that Apple will make money off will continue to make money themselves, so they continue to make new books and thus keep the money machine running for everyone.

If only someone in our government had a clue how to do something -- anything -- that promotes self-sustaining business models, instead of pandering to those who whine the loudest or only seek to take down the successful individuals and corporations that have demonstrated they know how to create products and services that consumers crave.

God forbid our government actually think further ahead than yesterday. We wouldn't actually want it to have an actual long-term goal in mind and a plan to actually get us there. This knee-jerk (emphasis on "jerk") reaction stuff is way more entertaining to watch ... as we all pack up our belongings and move into cardboard boxes in dingy alleys.